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CLIMATE CHANGE IS A MAJOR SOCIAL ISSUE THAT IS OF INCREASING CONCERN TO GOVERNMENTS, THE PUBLIC AND businesses, especially for those industries considered as large emitters of greenhouse gases (GHGs). In the past, international discussions have focused on the scientific issues surrounding the causes and the extent of climate change, but increasingly such debates are concerned with establishing GHG reduction targets, how to reach those targets, and the economic implications of that process. The Copenhagen summit inDecember 2009 was a case in point: the main source of resistance to committing to the proposed policies was no longer the willingness of the countries and industries involved to recognize the reality of climate change, but rather their concern about the potential impacts of the proposed policies on international competitiveness.
Modeling the Impacts of Corporate Commitment on Climate Change Olivier Boiral, 1 * Jean‐François Henri 2 and David Talbot 1 1 Département de Management, Université Laval, Québec, Canada 2 École de Comptabilité, Université Laval, Québec, Canada ABSTRACT The aim of this paper is to propose an integrative framework for understanding the determinants of business strategies to reduce greenhouse gas emissions and the impact of these determinants on performance. The proposed structural equation model is based on a survey of 319 Canadian manufacturing firms. The study calls into question the tradition- ally positive relationship between a firm’s environmental commitment and its economic motivations. However, the results also show a win–win relationship between the commit- ment to reduce greenhouse gas emissions and financial performance. This study contributes to the understanding of the motivations underlying the efforts manufacturers make to tackle climate change and their economic benefits. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment. Received 30 November 2010; revised 25 April 2011; accepted 29 April 2011 Keywords: climate change; corporate strategy; environmental commitment; G HG performance; motivations; stakeholder pressures Introduction C LIMATE CHANGE IS A MAJOR SOCIAL ISSUE THAT IS OF INCREASING CONCERN TO GOVERNMENTS, THE PUBLIC AND businesses, especially for those industries considered as large emitters of greenhouse gases (GHGs). In the past, international discussions have focused on the scientific issues surrounding the causes and the extent of climate change, but increasingly such debates are concerned with establishing GHG reduction targets, how to reach those targets, and the economic implications of that process. The Copenhagen summit in December 2009 was a case in point: the main source of resistance to committing to the proposed policies was no longer the willingness of the countries and industries involved to recognize the reality of climate change, but rather their concern about the potential impacts of the proposed policies on international competitiveness. On the one hand, the leaders of most developed countries are reluctant to commit to more substantial efforts to reduce GHG emissions, arguing that this could result in a loss of competitiveness relative to countries that do not commit to such efforts. On the other hand, the leaders of developing countries such as India or China have pointed to the costs of efforts to reduce GHG emissions and their lack of financial and technological resources to commit to such efforts (Helm, 2008; Falkner et al., 2010). *Correspondence to: Olivier Boiral, Pavillon Palasis‐Prince, 2325, Rue de la Terrasse, Local 1638, Université Laval, Québec (Québec) G1V 0A6, Canada. E‐mail: Olivier.Boiral@fsa.ulaval.ca Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment Business Strategy and the Environment Bus. Strat. Env. 21, 495–516 (2012) Published online 10 July 2011 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/bse.723 This political context – in which different countries have different positions concerning the future of international climate policies after 2012 – exposes companies to a very high level of regulat ory uncertainty (Kolk and Pinkse, 2005; Hoffmann et al., 2009; Engau and Hoffmann, 2011b). It is difficult to predict how the regulatory framework will change when India, China, and the United States – three of the five largest emitters of GHGs – are still reluctant to make binding commitments (Harrison, 2007; Engau and Hoffmann, 2011b; Falkner et al., 2010). In light of this, some companies have a tendency to take a ‘wait and see’ approach until the rules of the game become clearer (Kolk and Pinkse, 2005; Boiral, 2006; Jeswani et al., 2008). This attitude is reinforced by uncertainty about the economic impacts of the actions companies can take to reduce GHG emissions. Surprisingly, these impacts remain relatively little studied despite the international debate over this highly controversial issue. The dimension most often addressed in the literature is the motivation for companies to reduce GHG emissions. Most studies have surveyed managers or used company reports to examine the role of various types of motivation (see, e.g., Deloitte and Touche, 2006; Grant Thornton, 2007; Okereke, 2007; Sprengel and Busch, in press; Jeswani et al., 2008; Ernst & Young, 2010). The literature suggests that corporate commitment to reducing GHG emissions is influenced by a series of internal and external factors, ranging from pressure from stakeholders to economic and social motives. However, few studies have empirically examined the impact of these factors on corporate commitment. The majority have been limited to description or have only partially explored the various dimensions. Moreover, no integrative framework has yet been presented to simultaneously study the determinants and consequences of corporate commitment to reduce GHG emissions. Although it is critical for businesses to assess the economic impacts of efforts to reduce GHG emissions, this dimension remains relatively unexplored. Most work on this issue is limited largely to theoretical discussions (Dunn, 2002; Lash and Wellington, 2007; Nitin et al., 2009) or to descriptions of the risks and opportunities that could result from addressing climate change (Schultz and Williamson, 2005; Porter and Reinhardt, 2007). In most cases, the findings of these studies emphasize the economic benefits that could result from the reduction of GHG emissions by businesses. However, such optimistic assessments are rarely supported by empirical studies on the relationship betwee n the implementation of GHG reduction strategies and their measurable impacts. Indeed, according to Weinhofer and Hoffmann (2010), this could be a particularly fruitful avenue of research. In addition, several studies have shown that while the vast majority of executives are aware of the strategic implications of the impacts of climate change on their company, the policies and measu res actually implemented generally remain limited relative to the stakes (KPMG, 2008b; Deloitte & Touche, 2006; Ernst & Young, 2010). This gap between the rhetoric concerning the importance of corporate commitment to reducing GHG emissions and the actual implementation of strategies adds to the uncertainty about the nature and implications of such st rategies. As a result, the ongoing heated debates on the economic implications of efforts to reduce GHG emissions tend to be based more on political or ideological positions than on empirical data. In light of this scarcity of information, the current study was undertaken to analyze the determinants of implementation of strategies to reduce GHG emissions and their impact on performance, based on a survey of 319 industrial firms in Canada. The development of an integrat ive framework tested using structural equation modeling (SEM) makes it possible to explore the complex connections among many aspects of climate change strategies and their impacts. This approach also enables us to establish a general synopsis of the literature on the subject and simultaneously test several hypotheses put forward in other studies. This paper thus contributes to assessing the current major trends in the literature on climate change strategies and integrates a number of issues that are usually addressed separately into a single model. For economic and political leaders, the results of this study will help predict the main impacts of businesses making a commitment to reducing GHG emissions. Failure to take these issues into account exposes companies to risks that can no longer be ignored by corporate leaders (Lash and Wellington, 2007; Nitin et al. 2009; Porter and Reinhardt, 2007 ; Kolk and Pinkse, 2004). Indeed, these risks could threaten the legitimacy or even the continuation of the company (Griffiths et al., 2007; Dunn, 2002; Boiral, 2006). In addition, the biophysical impacts of climate change pose risks for many sectors of activity (Kearney, 2010; Nitin et al., 2009; KPMG, 2008a; Winn et al., 2011). This is the case for the agricultural sector, where harvests may be affected by shifting climate patterns. For example, wine production is already being affected by ongoing climate change, in the form of a northward shift in the growing zones of certain grape varieties, the emergence of new competitors, changes in key phases of the production cycle and grape harvest, reappraisal of certain terroirs or appellations, and so on (Jones et al., 2005). The 496 O. Boiral et al. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 21, 495–516 (2012) DOI: 10.1002/bse same types of observations have been made in the fishing industry, which is increasingly affected by the movement of certain food species into new waters and by the threat climate change poses to biodiversity (Brander, 2007). The remainder of this paper is organized as follows. The next sectio n presents a review of the literature and the conceptual framework. The subsequent two sections present the methodological aspects and the main findings, respectively. A discussion of the results, along with their implications for future research and managerial practices, is presented in the last section. Theoretical Framework and Hypotheses Research on GHG reduction strategies has improved our understanding of the motivations of businesses, the institutional context of their commitment, the type of commitment they make and the possible impacts. Nonetheless, the various facets of climate change strategies, and particularly their complex interactions, have been subject to relatively little empirical scrutiny. In general, despite the intensity of the debates on the Kyoto Protocol and the considerable economic stakes of GHG reduction efforts, studies of the issue have mainly demonstrated the complexity of the subject and the lack of certainty regarding the nature and impact of business strategies. Indeed, most research on climate change strategies remains theoretical and is based on classical models of environmental management or environmental economy (Lash and Wellington, 2007; Nitin et al., 2009; Porter and Reinhardt, 2007; Kolk and Pinkse, 2007a). Paradoxically, while the economic stakes appear to be the main obstacle to government commitments on climate change (Environment Canada 2007; Whalley and Walsh, 2009), the actual impacts of proactive climate change strategies remain largely unexplored. The lack of conclusive studies on the issue tends to increase uncertainty and hence the reluctance of some leaders to set out clear policies and measures to deal with it. Interestingly, most of the existing studies adopt a fairly optimistic view of the supposed economic benefits of GHG reduction efforts (Porter and Reinhardt, 2007; Dunn, 2002; Schultz and Williamson, 2005; Hoffman, 2006), while executives interviewed on the subject seem to suggest otherwise, emphasizing instead the costs of such efforts (The New Economics Foundation, 2004). This apparent contradiction can be partly explained by the complex and contingent nature of the possible impacts of these strategies. Thus, it is clear that some companies will gain competitive advantage through their GHG reduction efforts while others will lose out (Lash and Wellington, 2007, Porter and Reinhardt, 2007). The current uncertainty about the targets to be reached and possible future regulations, however, makes it very difficult to make realistic forecasts. Most recent studies have highlighted that this prevailing uncertainty and the lack of substantial commitment from some governments encourages a ‘wait and see’ approach (Jones and Levy, 2007; Luo, 2004; Boiral, 2006; The Economist Intelligence Unit, 2008), although some authors dispute this link (Hoffmann et al., 2009; Engau and Hoffmann, 2009; Engau and Hoffmann, 2011a). In any event, it is difficult to generalize from the conclusions of these studies because of differences in the sectors examined as well as geographical and socio‐political variation. Another limitation of the findings in the current literature is a lack of integration of the various aspects of GHG reduction strategies. Most studies focus on a single aspect (e.g. ext ernal pressures, motivations, the level of corporate commitment, or the impacts of that commitment) or address these issues using theoretical hypotheses about the supposed links between certain variables. The complexity of the interrelationships between the various facets of GHG reduction strategies necessitates the use of more comprehensive analytical models which incorporate multiple, non‐ linear interactions between the diverse variables that shape these strategies and their possible impacts. The model proposed in this study makes it possible to explore the links between the various aspects using a SEM approach (Figure 1). Determinants of GHG Commitment The growing media coverage of climate change, its impacts, and the efforts that must be made to substantially reduce global GHG emissions focuses ever greater attention on corporate responsibilities and climate change strategies. In some countrie s like Canada, large industrial emitters account for more than half of GHG emissions. In light of this, it is clearly impossible to achieve international targets for reducing GHG emissions without the 497Antecedents and Consequences of Corporate Commitment on Climate Change Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 21, 495–516 (2012) DOI: 10.1002/bse active involvement of businesses: they are thus both part of the problem and a key part of the solution to climate change. At a time when the lack of clarity in the corporate response and the apparent inconsistencies between talk and action are often criticized (Hoffman and Woody, 2008; Sussman and Freed , 2008; Boiral, 2006; Jones and Levy, 2007; Ihlen, 2009), many studies have examined the nature of corporate commitments to reduce GHG emissions and the implemented strategies and have tried to identify the underlying motivations and pressures. In general, these analyses of corporate climate change strategies are based on the classic distin ction between proactive and defensive approaches to environmental issues (Lawrence and Morell, 1995; Berry and Rondinelli, 1998; Sharma and Vredenburg, 1998; Aragon‐Correa and Sharma, 2003; González‐Benito and González‐Benito, 2006). However, several have proposed models or classifications of business commitments on climate change (Nitin et al., 2009; Kolk and Pinkse, 2005). For example, in their study of the response of British and Pakistani businesses to climate change, Jeswani et al. (2008) identified four major clusters, based on operational and management activities: indifferent, beginner, emerging, and active. For their part, Kolk and Pinkse (2005) proposed representing the strategic options facing businesses as a matrix in two dimensions: strategic intent (innovation or compensation) and the form of the organization (degree of interaction: internal, vertical, or horizontal). More recently, Weinhofer and Hoffmann (2010) presented a model incorporating a temporal perspective to categorize three types of strategies: CO 2 compensation, CO 2 reduction, and carbon independence. Other studies have focused not on different kinds of corporate responses, but on the various ways climate change strategies are implemented (Schultz and Williamson, 2005; Boiral, 2006). For example, Hoffman (2006) delineates five steps for implementing these strategies: assess carbon exposure, compare exposure with the competition’s, assess mitigation options, assess strategies to gain competitive advantage, and develop a strategic plan. The first determinant of corporate commitment to GHG reduction addressed in the literature is motivation. Most studies on motivation stress the importance of educating corporate leaders on these issues and analyze the economic, environmental, and social reasons that would justify a commitment on climate change (Hoffman, 2006; Kearney, 2010; Okereke and Russel, 2010) These reasons are interdependent rather than mutually exclusive (Okereke and Russel, 2010). The economic motivations are linked to the potential financial benefits that may result, directly or indirectly, from reducing GHG emissions. Environmental and social motivations for businesses are centered on the importance of complying with societal expectations and demonstrating their commitment to climate change issues. In general, corporate environmental commitments depend not only on economic incentives but also on the values held by the company’s executives and the social responsibility of the company (Bansal and Roth, 2000; Bansal, 2003; Boiral, 2005). GHG pressure GHG commitment GHG performance H3 H4 H5 Environmental exposure Environmental strategic management ISO 14001 certification Size Control variables Business motivations Environmental and social motivations H1 H2 Financial performance H6 Figure 1. Conceptual framework (H1–H6 refer to hypotheses one to six described in the text) 498 O. Boiral et al. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 21, 495–516 (2012) DOI: 10.1002/bse Thus, the main trends in the literature suggest two hypotheses concerning motivations to reduce GHG emissions: H1: Econom ic motivations (reduction of production costs, consumer demands, etc.) positively influence the commitment of companies to reduce GHG emissions; H2: Social and environmental motivations (social responsibility, reducing pollution, etc.) positively influence the commitment of companies to reduce GHG emissions. The second determinant of corporate climate change commitments addressed in the literature is pressure from various stakeholders. Indeed, pressure from stakeholders to reduce GHG emissions is generally perceived as one of the main drivers of corporate commitment (Okereke, 2007; Griffiths et al. 2007; Hoffman, 2006; Sprengel and Busch, in press). Governments, investors, environmental groups, customers and the general public are all increasingly aware of these issues and are putting increasing pressure on sectors with high carbon emissions such as the cement, oil, and transportation industries. The companies in these and other sectors considered to be large GHG emitters are thus particularly vulnerable to social pressures and new emission‐control regulations. In addition, such pressures vary from one geographic region to another and can change quite quickly. To anticipate long‐term changes, some studies attempt to analyze possible future scenarios by assessing the potential risks and consequences to companies (Ralston, 2008; Nitin et al., 2009). Pressure from the European Union to reduce industrial emissions of GHGs has led some companies to revise their strategies to comply with the new regulations or benefit from the new carbon emissions allowance market, established in 2005 (Pinkse, 2007; Okereke, 2007; Boiral, 2006; Pinkse and Kolk, 2009). In contras t, in countrie s that have not ratified the Kyoto Protocol or put in place substantive measures to address emissions, companies appear more inclined to adopt a ‘wait and see’ approach (Kolk and Pinkse, 2004, 2007a; Pinkse, 2007). More broadly, the institutional system of governance in each country or region influences the degree to which measures to reduce GHG emissions are coercive and the consequent level of business autonomy (Griffiths et al., 2007; Brouhle and Harrington, 2009; Galbreath, 2010). The institutional and social pressures for reducing GHG emissions do not depend solely on public policy and relations between companies and governments. Various stakeholders can also exert significant influence on the implementation of emission‐control measures. Business associations, professional societies, and chambers of commerce, for example, often participate in lobbying efforts and assist industries in implementing self‐regulatory mechanisms (Martin and Rice, 2010; Kolk and Pinkse, 2007b; Jones and Levy, 2007). Envi- ronmental groups can also influence the commitments made by companies, by publicly questioning the legitimacy of corporate actions (Lawrence and Morell, 1995; Sprengel and Busch, in press). Financial markets and insurance companies are also exerting increasingly strong pressure in favor of addressing climate change within business strategies (Lash and Wellington, 2007; Kolk and Pinkse, 2007a; Deloitte and Touche, 2006). Finally, customers and suppliers can play an important role in efforts to reduce GHG emissions. Companies that rely on independent suppliers must also rely on those suppliers to reduce GHG emissions in the supply chain, whereas companies that are highly vertically integrated have more direct control (Kolk and Pinkse, 2007a). The intensity of pressure from all stakeholders influences both the views of corporate executives and the strategic responses of companies to environmental issues (Sprengel and Busch, in press; Murillo‐Luna et al., 2008). Cumulatively then, the literature suggests that diverse stakeholder pressures strongly influence corporate commitments to reduce GHG emissions. Consequently, the following hypothesis can be formulated: H3: The intensity of pressure from stakeholders to reduce GHG emissions positively influences the commitment of businesses to do so (support for the Kyoto Protocol, implementation of proactive strategies, etc.). Determinants of GHG Performance The determinants of GHG perfor mance (i.e. the actual reduction of GHG emissions) are still relatively unexamined by empirical means, in particular because of the newness of the strategies that have been implemented, their long‐ term effects, and the difficulties of rigorously measuring performance. The complexity of measuring environmental 499Antecedents and Consequences of Corporate Commitment on Climate Change Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 21, 495–516 (2012) DOI: 10.1002/bse performance has often been stressed because of the multidimensional nature of environmental issues and lack of standardization (Lober, 1996; Hoffmann et al., 2009; Delmas and Blass, 2010; Cowan and Deegan, 2011; Kolk et al., 2008). Measuring GHG emissions appears to be more narrowly focused and specific standards such as ISO 14064 for GHG accounting and verification have been developed. In addition, industrial emissions are increasingly monitored for enforcement of regulatory standards and through corporate surveillance, such as that conducted by the Carbon Disclosure Project, which compiles information about the carbon emissions of large companies (Kearney, 2010). However, evaluating and comparing the carbon performance of companies is a complex process which can be based on many different indicators (Hoffmann et al., 2009). Although there is relatively little research to date on the determinants of GHG performance, two factors have been clearly identified in the literature. The first of these is pressure from stakeholders. Indeed, pressure from stakeholders to reduce GHG emissions is generally perceived as one of the main drivers not only of corporate commitment, but also of improved carbon perfo rmance (Okereke, 2007; Griffiths et al., 2007; Hoffman, 2006; Sprengel and Busch, in press). However, in the absence of mandatory regulations with specific targets for reducing GHG emissions, pressure from stakeholders can be quite ineffective and lead to superficial corporate responses or implementation of measures that do not really improve performance. This type of disconnect between institutional pressure and the true efficacy of the measures put in place in response to those pressures has been highlighted by various schools of thought, particularly the neo‐institutional theory (DiMaggio and Powell, 1983; Boiral, 2006). According to this view, in response to external pressures, companies adopt measures that are intended primarily to improve their social legitimacy without necessarily re‐examining their internal practices. Thus, corporate climate change strategies often seem more akin to coercive or mimetic isomorphisms (DiMaggio and Powell, 1983), intended to respond to external pressures or to imitate the most active competitors. In a survey of voluntary environmental agreements in the United States, Delmas and Montes‐Sancho (2010) showed that the last com- panies to enter a program make rather symbolic commitments, whereas the first participants take substantial action to reduce their environmental footprint. This difference can be explained by the varied intensities of institutional pressures (Delmas and Montes‐Sancho, 2010). Any examination of the determinants of GHG performance thus needs to examine both the intensity of the pressure companies face and the concrete commitment these companies make. The above arguments suggest that the GHG performance of companies is determined by their level of commitment and by pressure from stakeholders, which is thought to lead to substantive changes in organizations. Thus, it is possible to formulate two hypotheses: H4: A company’s level of commitment positively influences its GHG performance. H5: The intensity of external pressure on a company positively influences its GHG performance. Relationship Between GHG Performance and Financial Performance The analysis of the relationship between GHG performance and financial performance is polarized around two main approaches that reflect those used in studies examining the links between environment and economy in general. The first approach, which appears to dominate in international debates about national commitments to reduce GHG emissions, is based on win–lose reasoning (Environment Canada, 2007; Whalley and Walsh, 2009). In this view, the efforts companies make to reduce their carbon emissions result in costs that could detract from their competitiveness. The second approach is based on win–win reasoning, which argues that efforts to reduce GHG emissions help improve corporate competitiveness (Jones and Levy, 2007; Schultz and Williamson, 2005; Boiral, 2006; Hoffman; 2006; Okereke and Russel, 2010). This win–win logic is now dominant in the literature and probably explains, to a large extent, the current research focus on the economic motivations for efforts to reduce GHG emissions. In general – depending on the region, the business sector, and the implemented measures – climate change strategies can lead to quite varied economic benefits, including improved access to capital, satisfaction of customer expectations, and access to government subsidies and certain public contracts (Jeswani et al., 2008; Deloitte and Touche, 2006; Esty, 2007). The benefit most often cited is the reduction of energy costs associated with 500 O. Boiral et al. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 21, 495–516 (2012) DOI: 10.1002/bse minimizing the use of fossil fuels (Jeswani et al., 2008; Hoffman, 2006; Grant Thornton, 2007). Such savings depend largely on the cost of fossil fuels, how much energy the company uses, and the ease of reducing that consumption or of finding competitively priced alternative energy. The energy efficiency measures may also lead to technological innovations and the development of capabilities that enhance productivity and competitiveness (Dunn, 2002; Nitin et al., 2009; Hoffman, 2006; Hoffmann et al., 2009; Pinkse and Kolk, 2010). The existence of a market for tradable emissions permits may also influence corporate strategies (Martin and Rice, 2010; Hoffmann et al., 2009). Companies that do not address climate change in their corporate strategies are exposed to risks in terms of their competitive position (Nitin et al., 2009; Hoffman, 2006; Kearney, 2010). For example, the lack of substantial corporate commitments or clear strategies in this area may lim it the economic opportunities that these issues present (sale of tradable emission permits, technological innovations to reduce GHG emissions, new products, etc.). Consequently, some governments, such as that of France, plan to introduce carbon taxes penalizing companies or countries that have not introduced substantive measures to reduce their GHG emissions. In general, the introduction of new regulations or new policies represents a risk for companies that have failed to anticipate these developments (Deloitte and Touche, 2006; KPMG, 2008a, 2008b). This win–win reasoning, which predominates in the literature on the possible economic impacts of environmental actions, suggests the following hypothesis: H6: GHG performance positively influences the financial performance of the company. Control Variables The corporate response to these pressures is difficult to assess and depends on many factors, such as customer demands, the development of new technologies, or the potential savings that could result from reducing the use of fossil fuels (Enkvist and Vanthournout, 2008; Jones and Levy, 2007; Grant Thornton, 2007; Pinkse and Kolk, 2010). Similarly, the impact of commitments to reduce GHG emissions on financial performance may depend on the company’s efforts and contextual factors including the size of the firm, the implementation of standards such as ISO 14001, or the sector of activity. Moreover, the actual commitment of companies may be superficial or even contradictory, resulting in less predictable effects on financial performance and reduction of GHG emissions. As shown in Figure 1, the model also takes into account various contextual variables whose impacts are seemingly difficult to assess. Thus, the environmental risks specific to different sectors of business activity (environmental exposure) may influence the main variables of the model: different motivations depending on the sector, varying levels of external pressure depending on the amount of pollution emitted, widely variable economic impacts depending on the industry, etc. (Pinkse, 2007; Brouhle and Harrington, 2009; Jeswani et al., 2008; Al‐Tuwaijri et al., 2004). That said, the relationships among the model variables are not necessarily affected by the sector of activity. The same applies to other variables such as the size of the firm. Some managerial variables, such as ISO 14001 certification and the overall environmental actions of the company, may also affect some variables in the model, in particular the commitment to reduce GHG emissions and GHG performance. However, the impact of these variables remains controversial. The real efficacy of ISO 14001 certification in improving environmental performance and, more specifically, in reducing GHG emissions has not been clearly demonstrated (Jiang and Bansal, 2003; Boiral, 2007). Methods Survey Design The data were collected from a survey administered to a random sample of 1556 Canadian manufacturing firms obtained from Scott’s database. This database comprises fully autonomous entities or subunits of larger firms. In all cases, the firms were listed as separate entities in the database. We selected organizations with 20 or more employees, for which the contact names of the top management team were available. The final sample comprised 501Antecedents and Consequences of Corporate Commitment on Climate Change Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 21, 495–516 (2012) DOI: 10.1002/bse 1514 organizations (after exclusion of erroneous addresses, organizations that had moved, etc.). The questionnaire was first validat ed using a pre‐test administered to four academics and 20 managers. Data were then collected using a structured questionnaire sent to the CEO or the highest member of the ‘corpor ate’ top management team (for autonomous entity) or ‘local’ top management team (for business subunits) listed in the database. The questionnaire was sent to the respondents along with a letter explaining the purpose of the study and a self‐ addressed stamped envelope. Four weeks after the initial mailing, the non‐respondents received a replacement questionnaire. A total of 319 usable questionnaires were received, for a response rate of 21.1%. A sample size of 100 to 200 is generally considered adequate for small‐to‐medium structural equation models, yielding 5 to 10 observations per estimated parameter (Bentler and Chou, 1987; Anderson and Gerbing, 1988). In the current study, the sample size is adequate to test the proposed model (n = 319) as well as the number of observations per parameter (7.09). Furthermore, based on the guidelines of MacCallum et al. (1996), this study has adequate statistical power at 0.99, well above the recommended threshold of 0.80. The average size of the firms was 342 employees and the respondents had an average of 14.1 years of experience working for their organization. Appendix 1 presents a description of the sample in terms of the respondents’ position, experience and level of education, and the number of employees in the organization. To check for potential non‐response bias, a two‐step analysis was conducted. First, respondents were compared with non‐ respondents in terms of sample characteristics (firm size, industry, and geographical region). Then, early respondents (i.e. those providing answers before the follow‐up questionnaire was sent) and late respondents (i.e. those providing answers after follow‐up and used as proxies for non‐respondents) were compared in terms of the parameters of the main construct. Using chi‐square statistics, no significant differences (P > 0.05) were found between responde nt firms and non‐respondent firms in terms of their size, geographical region, or industry. Similarly, no significant differences were found between the means of the measures for the main constructs for early and late respondents. Hence, it appears that non‐response bias is not a major concern for this sample. Measurement of Constructs The instruments used to measure the main constructs are presented in Appendix 2. The descriptive statistics of the main constructs and correlation matrix are presented in Table 1. The GHG pressure construct consists of a list of key stakeholders identified as such in the literature (Delmas, 2002; Henriques and Sadorsky, 1999). Th e extent to which the respondent’s facility was under pressure from those stakeholders to reduce GHG emissions was assessed on a five‐point scale, with higher scores indicating higher perceived pressure. To identify the underlying dimensions of the ‘motivation’ construct, an exploratory factorial analysis (EFA) with varimax rotation was carried out on the list of 12 motivation elements presented to the respondents (Table 2). This list was drawn from two speci fic instruments (Delmas, 2002; Henriques and Sadorsky, 1999). Respondents were asked to indicate the extent to which the 12 elements in fl uence the environmental com- mitment of their facility (scale: 1 = no influence at all to 5 = very strong influence). The final factorial analysis revealed that two dimensions – business motivations and environmental/social motivations – explained a total of 50.06% of the variance. Four items adapted from an instrument developed by Melnyk et al. (2003) were used to measure GHG commitment. The respondents were asked to assess the extent of implementation of various initiatives on a five‐ point Likert‐type scale (1 = not at all, 5 = to a great extent). A higher score thus indicates a greater GHG commitment. The measures for both the GHG and financial performance variables were adapted from subjective instruments developed by Judge and Douglas (1998). In the view of many authors (e.g. Venkatraman and Ramanujam, 1987; Dess and Robinson, 1984), neither objective nor subjective measures are superior in terms of consistently providing valid and reliable performance assessments. For GHG emissions performance, respondents were asked to rate the GHG performance of their facility over the past 3 years relative to others in their industry. The questionnaire contains three items assessed on a five‐point Likert‐type scale (1 = much worse, 5 = much better), with higher scores thus indicating better GHG performance. Financial performance was measured using four items on which the respondents were asked to rate the overall performance of their facility over the past 3 years relative to 502 O. Boiral et al. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 21, 495–516 (2012) DOI: 10.1002/bse others in their industry, based on a five‐point Likert‐type scale (1 = much worse, 5 = much better). A higher score thus indicates better financial performance. To establish the reliability of each construct, we examined the Cronbach alpha and composite reliability coefficients. The recommended threshold of 0.70 was used to determine acceptable reliability (Nunnally, 1967; Fornell and Larcker, 1981). Moreover, to verify convergent validity, the variance extracted and first‐ order confirmatory factor analyses (CFA) were performed. Acceptable validity was determined by variance extracted values above the benchmark level of 0.50 (Hair et al., 1998). Three main elements were examined for the CFA: (i) the GHG pressure Business motivations Environmental and social motivations GHG commitment GHG performance Financial performance Descriptive statistics No. of items 84 5 434 Theoretical range 1–51–51–51–51–51–5 Minimum 1 1 1.29 1 2 1 Maximum 55 5 555 Mean 2.37 3.21 3.59 3.34 3.96 3.54 Standard deviation 1.30 0.86 0.77 1.15 0.84 1.07 Median 2.0 3.20 3.57 3.33 3.67 3.25 Correlation matrix (Pearson) GHG pressure 1.0 Business motivations 0.153 ** 1.0 Environ. and social moti- vations 0.233 ** 0.495 ** 1.0 GHG commitment 0.662 ** 0.028 0.320 ** 1.0 GHG performance 0.338 ** –0.036 0.032 0.469 ** 1.0 Financial performance 0.333 ** –0.074 0.026 0.306 ** 0.481 ** 1.0 Table 1. Descriptive statistics and correlation matrix of the main constructs GHG, greenhouse gas. **Significant at the 0.01 level. Items Business motivations Environmental and social motivations Marketing/advertising opportunity 0.482 0.430 Reducing production costs 0.629 –0.051 Increasing shareholder value 0.691 0.306 Customer demands 0.731 0.102 Greater access to capital 0.762 0.191 Public demonstration of environmental stewardship 0.059 0.732 Reducing environmental impacts and pollution 0.033 0.788 Improving regulatory compliance 0.251 0.505 Top managers’ social responsibility and ethical concerns 0.032 0.724 Employee mobilization 0.430 0.539 Corporate headquarters requirement 0.251 0.526 Demonstrating environmental leadership in our industry 0.195 0.774 Eigenvalues 1.596 4.411 % total of variance 13.298 36.760 Table 2. Exploratory factor analysis for the motivation constructs 503Antecedents and Consequences of Corporate Commitment on Climate Change Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 21, 495–516 (2012) DOI: 10.1002/bse significance of the standardized factor loading and the R 2 for each item, (ii) the overall acceptability of the measurement model using chi‐square statistics, and (iii) three indices of fit. These latter indices – the non‐normed fit index (NNFI), comparative fit index (CFI), and root mean square error of approximation (RMSEA) – represent complementary index types (absolute fit and incremental fit measures) and are among the most frequently reported. 1 Lastly, discriminant validity was assessed by comparing the variance extracted from each individual construct with the squared correlation between latent constructs (Fornell and Larcker, 1981). To support discriminant validity, the variance extracted for each construct must exceed the squared correlations. Appendix 2 presents the statistics of the measurement analysis for the initial and re‐specified models. Re‐ specification was necessary for only two constructs, namely business motivations (one item was deleted due to an inadequate R 2 value) and environmental and social motivations (two items were deleted due to inadequate R 2 values). Once those re‐specifications were made, all constructs exceeded the recommended thresholds for the Cronbach alpha, composite reliability, and variance extracted; exhibited acceptable model fit; had adequate R 2 values; and all factor loadings were statistically significant (P < 0.01). The only exceptions were the variance extracted values for the two motivation constructs, which were slightly below the threshold. All comparisons between the variances extracted and the squared correlations supported the discriminant validity of the constructs. Data Analysis SEM was used to test the theoretical model. SEM consists of a set of linear equations that simultaneously test two or more relationships among directly observable and/or unmeasured latent variables (Bollen, 1989; Bollen and Long, 1993). We analyzed the data collected from the survey using LISREL 8.72 and used a covariance matrix as the input matrix. As has been suggested for models using multivariate non‐normal data (Bentler and Chou, 1987), we used maximum likelihood estimates (robust to this type of violation) and multiple indices to assess the model’s overall goodness‐of‐fit. Furthermore, composite indices and a partial disaggregation approach were used to represent latent constructs (Bagozzi and Heatherton, 1994). Results Structural Model and Hypotheses Table 3 presents the results for the structural model in terms of path coefficients, Z statistics, number of iterations, proportion of variance (R 2 ), and goodness‐of‐fit indices. The model exceeded the recommended threshold values (see footnote 1) for the three fit indices: NNFI = 0.97, CFI = 0.97, RMSEA = 0.06. This indicates a good overall fi tof the data to the model. No re‐specification of the initial models was made and no starting values were used. Figure 2 illustrates and summarizes these results. When each hypoth esis was examined separately, support was found for four of the six hypotheses. The first three hypotheses all dealt with the determinants of GHG commitment. A significant and positive link was observed between GHG pressure and GHG commitment (0.762; P < 0.01). This result provides strong support for H3 by suggesting that increased stakeholder pressure positively influences companies’ commitment to reduce GHG emissions. The results also provide support for H2, showing a significant and positive association between environmental and social motivations and GHG commitment (0.330; P < 0.01). However in the case of H1, the results indicate a significant but negative link (−0.269; P < 0.01), suggesting that, contrary to our expectations, increased business motivations were associated with a reduced GHG commitment. Given the overall support for the win–win thesis, one possible explanation of this surprising result lies in the possibility that benefits such as marketing opportunities, reduced production costs, or increased shareholder value were not expected at the outset by these Canadian companies. Still, our results show that 64.4% of the variance of GHG commitment is explained by the three variables we examined, particularly by GHG pressure and environmental and social motivations. 1 The recommended threshold values are: (i) NNFI > 0.90 (Tabachnick and Fidell, 2001), (ii) CFI > 0.95 (Hu and Bentler, 1995), and (iii) RMSEA < 0.10 (Browne and Cudeck, 1993). 504 O. Boiral et al. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 21, 495–516 (2012) DOI: 10.1002/bse [...]... subgroups for the link between business motivations and GHG commitment for two contextual variables, environmental exposure and ISO 14001 certification In both cases, the association was no longer significant for one subgroup Discussion and Conclusions The aim of this study was to propose an integrated model of the determinants of corporate strategies to reduce GHG emissions and their impacts on environmental... GHG emissions and its apparent contradiction of the prevailing win–win reasoning in the literature This resistance is probably not only due to the economic or strategic concerns of business leaders, but also, to some extent, due to their core values and their ability to manage complex problems such as the integration of economic, social, and environmental issues in the process of tackling climate change... and the Environment 20: 157–173 Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment Bus Strat Env 21, 495–516 (2012) DOI: 10.1002/bse Antecedents and Consequences of Corporate Commitment on Climate Change 513 Appendix A: Description of the Sample Position of respondent Experience within the firm (average in years) CEO/general manager Senior executive/other manager Production manager Director of. .. the economic impacts of efforts to reduce GHG emissions does not seem to have been studied in great depth Presumably, this prevailing uncertainty is driven in part by political debates on the economic impacts of the Kyoto Protocol The lack of empirical studies on these impacts also tends to increase uncertainty The degree of uncertainty about economic impacts may also vary by geographical region, depending... influence corporate commitment to reduce GHG emissions Our findings indicate that this commitment is primarily motivated by environmental and social concerns (e.g public demonstration of the company’s commitment, ethical issues, pollution reduction) and by pressure from various stakeholders (e.g the head of ce, general public, environmental groups) The possible reduction in production costs, better response... Business on Climate Change Greener Management International 39: 27–41 Eberlein B, Matten D 2009 Business Responses to Climate Change Regulation in Canada and Germany: Lessons for MNCs from Emerging Economies Journal of Business Ethics 86: 241–255 Economist Intelligence Unit 2008 Under the spotlight: the transition of environmental risk management The Economist Intelligence Unit Limited: London Engau C, Hoffmann... unpredictability of the economic impacts of corporate commitments to reduce GHG emissions Indeed, our findings suggest that, in contrast to environmental and image‐oriented motivations, business‐oriented motivations do not positively influence corporate GHG commitment This negative relationship may be partly explained by senior management’s uncertainty concerning the real economic impacts of efforts to... emissions can result in benefits that executives have not foreseen For example, the willingness of leaders to reduce pollution and improve corporate social responsibility can lead to profitable innovations or a reduction in the firm’s consumption of costly fossil fuels Finally, the results of the sensitivity analysis showing the influence of certain contextual factors should not be underestimated The negative... implementation would be likely to involve the establishment of clearer rules and regulations It would also require better stakeholder surveillance of the actual GHG performance of companies Although this study enhances our knowledge of the challenges and consequences associated with corporate responses to climate change, the results should be interpreted in the context of its limitations The unique... change In this view, the climate change strategies that companies adopt reflect the complex management challenges posed by introducing the concept of sustainable development into the corporate world It is likely that these challenges will only be truly addressed by companies when the rules of the game and the institutional system of governance that underpins monitoring of GHG emissions become clearer